Look up the phrase getting your ducks in a row and you will find that it refers to being completely and meticulously organized in advance of whatever it is you are setting out to do. The phrase may have originated with the manual setting of bowling pins (which used to be referred to as ducks) but I prefer the image of a mother duck organizing her youngsters for a walk. Regardless of its origin, the concept of thorough groundwork and preparedness has many applications in a fire-service career. From an individual financial perspective, we all need to have our ducks in a row for retirement planning before it’s time to exit from our careers.
The advice I have given to recruit firefighters has always been to start their retirement plans from day one. Many new firefighters have been in the workforce for a few years and have already started their RRSPs, for example. Others have less awareness of the options available to them. I recall one Aussie accent interrupting my talk with “Chayf, wut’s an oar oar ess pay?” I told Roo (what else could we call him?) essentially the same thing I have always told any new employee – find a good financial advisor and get yourself educated.
I have known firefighters who resisted the concept of retirement savings, preferring to rely solely on their defined benefit pension at the end of their careers. While our pension plans are certainly solid and guaranteed, they are also limited in terms of how much they will pay out. Generally, a retiree will receive two per cent per year of service times the annualized average of their best consecutive 60 months of earnings. This is normally capped at 70 per cent, so those intrepid few who work beyond 35 years do not build further value in their pensions. On the other hand, they no longer make contributions, which is almost like getting a 10 per cent raise.
Let’s look at contributions for a minute. Many public sector pension plans have a normal retirement age, or NRA, of 65 for most members and of 60 for police and fire. The percentage of earnings deducted from an employees’ pay cheque depends on whether they are NRA 65 or NRA 60. Using figures from Ontario for a plan member earning $90,000 (the approximate salary of a full-time fire captain in a medium or large city), the NRA 65 employee contributes about 7.9 per cent whereas the NRA 60 employee contributes 10.25 per cent for the same benefit.
Imagine a set of twins who start work for the same city on the same day at age 25, with one choosing a fire service career and the other a career in municipal works. They each rise to supervisory positions and have almost identical earnings when they choose to retire at age 60. They will each receive 70 per cent of their average annual earnings over their best 60 consecutive months, however, the fire-fighting twin will have paid almost 30 per cent more for the same pension. If you are wondering how I arrived at that figure, that is the difference between 7.9 per cent and 10.25 per cent from the previous paragraph.
Given this information, what is the advantage of NRA 60 for firefighters? I don’t believe there is an advantage, unless you start your career in your early twenties. Otherwise, the only advantage is that you will reach your eligibility factor of age plus years of service two and a half years earlier (85 factor for NRA 60 versus 90 factor for NRA 65). Compare that against the non fire-fighting twin, who has 2.35 per cent of his earnings (this time I did subtract) available to invest, and more RRSP eligibility due to lower pension contributions.
This seems like it is skewed against us, doesn’t it? Actually, it is not. The pension plans look at each group separately, and take contributions based on expected payout of benefits. It seems that the current average retiring NRA 60 member has earned a higher benefit than the average NRA 65 member, and this trend is expected to continue. In the case of the Ontario Municipal Employees Retirement System, these benefit increases are due in part to retention (or recognition) pay incentives, which have increased salaries of many police and fire members by nine per cent in the latter years of their careers. This increase would, in most cases, be in effect during a retiring member’s best 60 months and would therefore increase his pension benefit.
All this information is available from your pension plan, your employer and your union local. All except my spin and examples. As I said above, get a good financial advisor and remember that financial advisors don’t work for free. You read this for free, and I hope it was worth the price. I will continue on this topic in my Flashpoint blog on firefightingincanada.com and I hope to see your
Retired District Chief Peter Sells writes, speaks and consults on fire service management and professional development across North America and internationally. He holds a B.Sc. from the University of Toronto and an MBA from the University of Windsor. He sits on the advisory council of the Institution of Fire Engineers, Canada branch.